July 18 (Reuters) - U.S. regional lender Regions Financial RF.N on Friday raised its annual interest income forecast above Wall Street expectations, betting on prudent management of deposit costs and stable loan demand.

Some banks in the country are starting to benefit from steadier funding conditions and improved lending trends, after months of pressure from elevated deposit costs and subdued loan demand.

"We are experiencing solid deposit growth, disciplined loan production and strong performance across fee-based businesses, including Treasury Management and Wealth Management," Regions Financial CEO John Turner said.

The bank expects its full-year interest income to grow between 3% and 5%, up from its prior view of 1% to 4%. Analysts on average estimate a 2.35% increase, according to estimates compiled by LSEG.

Net interest income is a key profit driver for mid-sized banks such as Regions, making its growth vital as the sector contends with elevated rates and tighter liquidity. Regions' upbeat forecast points to strengthening core lending operations.

The bank also expects loans to be stable or gain modestly in 2025.

Interest income in the second quarter grew 6.2% to $1.26 billion, while net interest margin expanded to 3.65% from 3.51% a year earlier.

Regions ended the quarter with $126 million in provision for credit losses, compared with $102 million a year earlier.

Provisioning is often seen as a gauge of the economic outlook, with uncertainty prompting banks to set aside more funds in case consumers and businesses struggle to repay commercial loans, credit card debt or mortgages.

Regions posted earnings of 59 cents per share in the three months ended June 30, compared with 52 cents apiece a year ago.

(Reporting by Manya Saini in Bengaluru; Editing by Shreya Biswas)

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